Whether you’re looking to raise funding from private investors or to get a loan from a bank (like a SBA loan) for your daycare, you will need to prepare a solid business plan.
In this article we go through, step-by-step, all the different sections you need in your daycare business plan. Use this template to create a complete, clear and solid business plan that get you funded.
1. Executive Summary
The executive summary of a business plan gives a sneak peek of the information about your business plan to lenders and/or investors.
If the information you provide here is not concise, informative, and scannable, potential lenders and investors will lose interest.
Though the executive summary is the first and the most important section, it should normally be the last section you write because it’s the summary of the different sections included in your business plan.
Why do you need a business plan for your daycare?
The purpose of a business plan is to secure funding through one of the following channels:
- Obtain bank financing or secure a loan from other lenders (such as a SBA loan)
- Obtain private investments from investment funds, angel investors, etc.
- Obtain a public or private grant
How to write an executive summary for your daycare?
The executive summary of your daycare business plan should include the following important information:
Introduce your company (its name, its mission) and the history behind it: why did you decide to create a daycare in your area today? Why you?
Also, that’s where you should expand on the business: where will the daycare facility be located? How old are the children you target? How many children will you be able to take care of? What are the amenities (classrooms, playground, cafeteria, etc.)?
Provide here a deep market analysis that backs your decision to open a daycare business in your area today. Why would your business succeed given current market conditions?
For example, the market analysis should include information like: what are your competitors in the area? What are their characteristics, strengths and weaknesses? Who are your target audience (parents and children)? Is that in line with the demographics in your area?
Management & People
Who is the management team? What is your/their experience in the daycare industry?
What is your expected revenue and profitability for the next 5 years? When do you expect to break-even? Simply include here a chart of your key financials (e.g. Revenue, Gross Profit, Net profit)
What loan/investment/grant are you seeking? How much do you need? How do you intend to spend the money?
2. Daycare Business Overview
The business overview section of the daycare business plan summarizes the basics of your facility, including the background information, business model, services, target audience, and legal structure.
a) History of the Project
When you launch a daycare business, you want it to grow and even become the best in the region if possible. One small element that can catalyze your company’s growth is its history. You don’t have to exaggerate the information here, but try to include useful details that will make your daycare business stand out.
For a business as sensitive as daycare, trust overrides anything else. So, make sure to include in your business plan your experience and passion for children to demonstrate to investors you are qualified and the right person to successfully run a new daycare facility.
Also, flesh out the history behind the project: why are you starting a daycare now? For example, you may have noticed a lack of child care services for toddlers and infants in the city.
b) Business Model
Next up is the business model. This is the revenue-generating plan that identifies how your business operates. A daycare business model should be succinct and address specific things about the business.
For instance, is it a commercial daycare facility or a family daycare? Is it an independent facility or a partnership? And should you opt for a daycare franchise?
Keep in mind that daycare facilities vary by the target age group. So, you can opt for a childcare center, a family daycare, a kindergarten/pre-school, or a nursery school.
c) Daycare Services
It takes a lot to raise a child. So, be clear on the services you want to offer in your newly founded daycare facility. The quality of services will make your business more attractive. But an even bigger factor will be the type of services you provide at the facility.
Indeed, a lot happens inside a daycare facility, from hands-on learning (classrooms, private tuition) to field trips, games and community events.
d) Pricing Strategy
Age is a key factor when setting the prices of your daycare services. On average, parents across the US pay about $9,400 per year on child care per child. Of course, the actual figure will vary based on a number of factors, but this is a great starting point when getting into the industry.
An accurate pricing strategy can help you outshine your biggest competitors. However, don’t forget that setting cheaper prices isn’t necessarily the best strategy, just in the same way overpriced services may turn off potential clients.
e) Target Audience
Daycare centers are so named because they are about a child’s well-being. However, the final decision rests with the parents, who must buy into your idea and long-term vision for the facility.
For this type of business, you have a definite target market. And all you have to do is ensure your facility is closer to a busy neighborhood with many children. Find out if the families truly need child care services, why they need these services and the children’s average age.
Finally, make sure your services are aligned with your target audience. For example, you wouldn’t necessarily succeed with a daycare operating 9am – 4pm in an area where parents typically work long hours in the city and need time to commute back to their neighborhood to pick up their kids.
Same goes for pricing: if you offer high-quality expensive daycare services, make sure your daycare is either located close to offices or in an area where affluent parents work or live.
f) Legal Structure
Finally, your business overview section should specify what type of business structure you opt for. Is this a corporation or a partnership (LLC)? Who are the investors? How much equity percentage do they own? Is there a Board of Directors? If so, whom? Do they have experience in the industry?
3. Daycare Market Overview
In the market overview section of your business plan, you must cover 2 important areas:
- Market trends: how big is the daycare industry in your area? How fast is the market growing? What are the trends fuelling this growth (or decline)?
- Competition analysis: how many competitors are there? How do they compare vs. your business? How can you differentiate yourself from them?
a) Daycare Market Trends
How big is the daycare industry in the US?
It’s always helpful to base your business decisions on the latest trends in the US market. For instance, the US daycare market had a value of approximately $54.3 billion in 2019. And it is projected to grow at an annual rate of 3.9% from 2020 through 2027.
According to reports, the high number of parents occupying full-time and part-time jobs is a major driving force behind the increasing demand for daycare services. No matter how you look at it, these statistics make the daycare business even more lucrative, provided you get all the basics right through your business plan.
How big is the daycare industry in your region?
After the US, assess the size of the daycare market in your city or area. Focus on the zone where you plan to offer daycare services.
Naturally, you might not be able to get the data for your specific city or region. Instead, you can estimate the size of your market, for more information on how to do it, read our article on how to estimate TAM, SAM and SOM for your startup. To give you an example, let’s assume you plan to operate in an area where there are already 10 competitors:
As we know the US daycare industry is worth $54 billion today, and there are about 230,000 child care centers, therefore the average annual turnover per child care center is around $235,000.
Now, we can safely assume that the daycare industry is worth $23 million in your area (10 centers).
How fast is the daycare industry growing in your region?
Growth is an important metric for assessing the status of the daycare industry in your region.
Here if you don’t find information online or via your research, you can calculate growth using the total number of competitors in your area.
For example, assuming there were 8 daycare competitors in the region in 2018, and 10 in 2022, the annual growth rate is 6% per year.
b) Daycare Competitor Analysis
At the very least, your competitor analysis should answer all the questions below:
- How many daycare businesses are the area where you plan to open yours?
- What type of daycare businesses are there: home-based vs. center-based home care, early care vs. early education & daycare, etc.
- What age range do they specialise in?
- What services do your competitors offer?
- What amenities do your competitors have (playground, classrooms, etc.)
- What’s their average price (daily rate / monthly rate)?
- What is the child / staff ratio of your competitors?
4. Sales & Marketing Strategy
For some existing daycare facilities, marketing isn’t the most important aspect of running the business. But you’ll probably have to implement a few marketing strategies at the beginning to attract the first families, especially if you’re starting a new daycare facility.
a) Daycare Market Channels
A daycare business doesn’t have diverse marketing channels like retail stores or other businesses. So, this may limit your options when it comes to new marketing channels.
Apart from word of mouth, other marketing channels include;
- Social media
- Online listing (Google business, Facebook business page)
b) What are Your Unique Selling Points (USPs)?
Daycare facilities offer pretty much the same services, and it’s not easy to stand out from the competition. However, a few factors can be useful when evaluating your opportunities in a competitive market, including:
- Target age group: You may cover a unique age group as opposed to your competitors
- Opening hours: you may offer longer opening hours to accommodate for different parents’ jobs and availabilities
- Price: Your services may be cheaper than your competitors
- Quality & amenities: Quality services and extra amenities (outdoor playground, etc.) will make your daycare facility more attractive vs. competitors
- Services: Your services may go beyond the standard hands-on learning and kid games
5. Management & People
The 5th section of your daycare business plan should be about people. It should include 2 main elements:
- The management team and their experience / track record
- The organizational structure: what are the different teams and who reports to whom?
Here you should list all the management roles in your company.
Of course, the amount of details you need to include here varies depending on the size of your company. For example, a small daycare business run by 1 or 2 persons doesn’t need the same level of detail vs. a large center with 50 children or more.
If you plan on running your business independently, you may write a short paragraph explaining who are the co-founders and/or senior managers (if there are any in addition to yourself). It’s important to highlight their experience in the industry and previous relevant professional experiences.
b) Organizational structure
No matter how many leadership roles there are, you should now explain how you intend to run the company from a management standpoint.
What are the different teams (management, childcare staff, cooking staff, human resources, finance, etc.)?
Note that you should include these details even if you haven’t hired anyone yet. It will show lenders and investors that you have a solid hiring and management plan to run the business successfully.
A great addition here is to add an organizational chart that list all the roles, from Directors to managers, key supervisory roles and employees. Make sure to highlight with reporting lines who manages/supervises whom.
6. Financial Plan
The financial plan is perhaps, with the executive summary, the most important section of any business plan.
Indeed, a solid financial plan tells lenders that your business is viable and can repay the loan you need from them. If you’re looking to raise equity from private investors, a solid financial plan will prove them your daycare is an attractive investment.
There should be 3 sections to your financial plan section:
- Your historical financials (only if you already operate the business and have financial accounts to show)
- The startup costs of your project (if you plan to start a new daycare facility, or add capacity to an existing daycare center, renovate your facilities, etc.)
- The 5-year financial projections
a) Historical Financials (optional)
In the scenario where you already have some historical financials (a few quarters or a few years), include them. A summary of your financial statements in the form of charts e.g. revenue, gross profit and net profit is enough, save the rest for the appendix.
If you don’t have any, don’t worry, most new businesses don’t have any historical financials and that’s ok. If so, jump to Startup Costs instead.
b) Startup Costs
Before we expand on 5-year financial projections in the following section, it’s always best practice to start with listing the startup costs of your project.
For a daycare, startup costs are all the expenses you incur before you open the space to your customers. These expenses typically include: renovation costs, equipment and furniture, etc.
The startup costs for opening a child care center depend on various factors such as the location and size of your daycare facilities, the capacity (the number of children you plan to have), the quality of the amenities, etc.
We’ve identified that it costs anywhere between $130,000 to $490,000 to start a daycare business with 50 children. See below the cost estimates.
Note that these costs are for illustrative purposes and depend on several factors which might not fully apply to you. Let’s first start below with startup costs.
|Lease deposit||$22,500 – $45,000|
|Renovation||$90,000 – $420,000|
|Equipment & supplies||$15,000 – $20,000|
|Licenses||$2,500 – $5,000|
|Total||$130,000 – $490,000|
c) Financial Projections
In addition to startup costs, you will now need to build a solid daycare financial model over 5 years.
Your financial projections should be built using a spreadsheet (e.g. Excel or Google Sheets) and presented in the form of tables and charts in your business plan.
As usual, keep it concise here and save details (for example detailed financial statements, financial metrics, key assumptions used for the projections) for the appendix instead.
Your financial projections should answer at least the following questions:
- How much revenue do you expect to generate over the next 5 years?
- When do you expect to break even?
- How much cash will you burn until you get there?
- What’s the impact of a change in pricing (say 10%) on your margins?
- What is your average customer acquisition cost?
You should include here your 3 financial statements (income statement, balance sheet and cash flow statement). This means you must forecast:
- The number of children over time ;
- Your expected revenue ;
- Operating costs to run the business ;
- Any other cash flow items (e.g. capex, debt repayment, etc.).
When projecting your revenue, make sure to sensitize pricing and the number of members as a small change in these assumptions will have a big impact on your revenues.
When it comes to the costs, consider both startup and operating costs. For more information, read our complete guide here.
7. Funding Ask
This is the last section of the business plan of your daycare center. Now that we have explained what type of daycare services your company would offer, at what price, your marketing strategy, management and people, this section must now answer the following questions:
- How much funding do you need?
- What financial instrument(s) do you need: is this equity or debt, or even a free-money public grant?
- How long will this funding last?
- Where else does the money come from? If you apply for a SBA loan for example, where does the other part of the investment come from (your own capital, private investors?)
Use of Funds
Any business plan should include a clear use of funds section. This is where you explain how the money will be spent.
Will you spend most of the loan / investment to buy the real estate and do the renovations? Or will it cover the cost of the salaries of your childcare staff and other employees the first few months?
Those are very important questions you should be able to answer in the blink of an eye. Don’t worry, this should come straight from your financial projections. If you’ve built solid projections like in our daycare financial model template, you won’t have any issues answering these questions.
For the use of funds, we recommend using a pie chart like the one we have in our financial model template where we outline the main expenses categories as shown below.